Consumer and Retail Finance – November 2016

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Latest updates from the FCA, what’s coming up in 2016 and news from the CMA.

Financial Conduct Authority (FCA)

The FCA has published its revised proposed guidance on guarantor loans (GC16/7), concerning the enforcement of security under the Consumer Credit Act 1974 (CCA), including the section 87 requirement to serve a default notice before taking certain actions following breach of a regulated agreement. The original proposed guidance published in its February 2016 consultation reversed the FCA’s earlier position that service of a default notice on a guarantor was not required prior to taking or demanding payment from the guarantor.  The FCA has moderated its approach compared with the original proposed guidance:

  • lenders will not be able to demand payment of a guarantor or take payment via use of a continuous payment authority (CPA) without notice unless they have first issued a section 87 default notice;
  • a lender can, however, receive a voluntary payment made by a guarantor who has been notified of the borrower’s default provided such payment is made without any element of compulsion and can request payment from the guarantor without first issuing a default notice;
  • taking payment from a guarantor via use of a previously set up CPA or direct debit would not amount to enforcement requiring a section 87 default notice to first be issued provided the guarantor is pre-notified before payment is taken and has the opportunity to object or cancel the CPA/direct debit.

The FCA has also recently published a guidance consultation on the treatment of customers with mortgage payment shortfalls (GC16/6), primarily aimed at residential mortgage lenders and administrators of regulated mortgage contracts. The guidance covers remediation for customers who may have been affected by the way firms calculate their monthly mortgage instalments. A list of questions is contained in the Annex to the publication and comments on these and any other relevant issues are requested by 18 January 2017.

The FCA intends to review the price cap on high-cost short-term credit (HCSTC) in the first half of 2017. It has now decided to expand this work to look at high-cost products as a whole. A call for input was published yesterday. Evidence and feedback on the following is requested by 15 February 2017: high-cost credit products; overdrafts; the HCSTC price cap; and repeat and multiple HCSTC borrowing. In a recent report on the impact of the FCA rules on the payday loan industry, StepChange Debt Charity urged the FCA to look closer at responsible lending measures in the HCSTC market.

Updated consumer credit information sheets have been published and are effective from 18 January 2017. As required by section 86A of the CCA, lenders must include a copy of the relevant information sheet when notifying a consumer that they are in arrears or default. Firms must use the current versions until 17 January 2017.

The FCA is consulting on its future Mission, with the aim of setting out a clear path for the future of financial conduct regulation in the UK. The consultation includes sections on protecting consumers, vulnerable consumers, and whether there is a need for a more specific Handbook review. The FCA is seeking input on its approach and a list of questions is contained in the Annex to the publication. Comments on these and any other relevant questions the Mission should address are requested by 26 January 2017.

The FCA has published high-level guidance for consumer credit firms on how to protect themselves from financial crime. It is particularly relevant for those firms which are new to being regulated by the FCA. The aim is to enhance understanding of the FCA’s expectations and to help consumer credit businesses assess the adequacy of their financial crime system and controls.

In the recent case of Dr Saim Köksal t/a Arcis Management Consultancy v FCA the Upper Tribunal (Tax and Chancery Chamber), having upheld the FCA’s decision to refuse an application to vary existing permission to carry on certain regulated activities, went on to comment (at paragraph 161 of its decision) that the FCAcould perhaps be more helpful when it is clear that a firm is struggling with the complexity and opaqueness of some of the regulatory provisions and give a clear steer as to what matters fall within the scope of the [FCA]’s regulation and which do not”, noting, for instance, that “the perimeter guidance from the [FCA] is somewhat limited when it comes to consumer credit related activities”.

Coming up in 2016…
  • The FCA’s final rules for price comparison websites comparing HCSTC products come into force on 1 December 2016.
  • The FCA is due to publish consultations on updating and clarifying consumer credit reporting provisions and on assessing affordability and creditworthiness. We also expect to see the results of the FCA’s thematic review of staff remuneration and incentives in consumer credit firms and of early arrears management in unsecured lending, and an update on the progress of the FCA’s review of the retained provisions of the CCA. Feedback on the FCA’s latest quarterly consultation, which included proposed changes to the APR assumptions for consumer credit, is expected in December 2016.
  • The FCA’s new rules on reporting financial crime come into force on 31 December 2016. Watch out for our separate briefing on this topic.

Competition and Markets Authority (CMA)

The CMA has published new guidance for businesses on the Consumer Rights Act 2015, after research amongst UK businesses revealed that 54% of those surveyed do not fully understand the rules on unfair terms, which directly impacts how they treat their customers.

The government and the FCA have each published their response to the recommendations made by the CMA following its market investigation into the supply of retail banking services to personal current account customers and to small and medium-sized enterprises in the UK. The CMA’s final report was published in August 2016.